Factors Affecting Your
Offer Price
Since you have
toured the property you are interested in, you should know how it
compares to the general neighborhood. All you have to do is put the
home in one of three categories - average, above average, or below
average.
When evaluating a
home’s condition, there are a number of things you should consider.
Structural condition is most important - items such as walls,
ceilings, floors, doors and windows. Then paint, carpets, and floor
coverings. Pay special attention to bathrooms and bedrooms and
whether the plumbing and electricity work efficiently. Look at the
fixtures, such as light switches, doorknobs, and drawer handles. The
front and back yards should be in reasonably good shape.
The missing
ingredient will be information on the condition of the homes from
your comparable sales list. Provided you chose the right agent to
represent you, they will have actually visited most of those homes
and be able to provide key insights.
Even when
comparing exact model matches within a tract of homes, you should
note whether the previous owners have made any substantial
improvements. Cosmetic changes should be largely ignored, but major
improvements should be taken into account. Most important would be
room additions, especially bedrooms and bathrooms. Other items, like
expensive floor tile or swimming pools should be taken into account,
too, but should be discounted. A pool that costs $20,000 to install
does not normally add $20,000 in value to the home.
Rely on your
agent to give you guidance in this area
A hot market is a
"seller’s market." During a seller’s market, properties can sell
within a few days of being listed and there are often multiple
offers. Sometimes homes even sell above
the asking price. Though most buyer’s want to get a "deal" on a
home, reducing your offer by even a few thousand dollars could mean
that someone else will get the home you desire.
A slow market is
a "buyer’s market. During a buyer’s market properties may languish
on the market for some time and offers may be few and far between.
Prices may even decline temporarily. Such a market would allow you
to be more flexible in offering a lower price for the home. Even if
your offered price is too low, the seller is likely to make some
sort of counter-offer and you can begin negotiations in earnest.
More often than
not, the market is simply "steady," or in transition. When a market
is steady, no real rules apply on whether you should make an offer
on the high end of your range or the low end. You could find
yourself in a situation with multiple offers on your desired house,
or where no one has made an offer in weeks.
Transition
markets are more difficult to define. If the economy slows
unexpectedly, as it did in the early nineties, people who buy on the
high end of a seller’s market (like the late eighties) could find
their home loses value for several years. So far, no one has proven
reliable in predicting when markets change or how good or bad the
real estate market will become.
Rely on your
agent to give you guidance in this area.
Truthfully, it is
rather rare that a seller’s motivation will dramatically affect the
price of a home, but it is often possible to save a few thousand
dollars. The most common "motivated seller" is someone who has
already bought his or her next home or is relocating to a new area.
They will be under the gun to sell the home quickly or face the
prospect of making two mortgage payments at the same time. Since
that can drain a bank account quickly, most sellers want to avoid
such a situation and may be willing to give up a few thousand
dollars to avoid the possibility.
There are also
family crises that can motivate a seller to make a quick deal.
However, when you see a real estate ad that mentions "divorce,"
"motivated seller," "relocation", or something to that affect,
beware. Although the facts may be true, that does not necessarily
mean the seller is motivated to make a quick and costly sale. Most
likely, the ad is more designed to generate phone calls and leads
rather than sell the home.
However, there
are times when a seller is truly distressed, willing to make a quick
sale and sacrifice thousands of dollars. With the seller’s
permission, the listing agent will post this information along with
the listing in the Multiple Listing Service. They may also inform
other agents during office and association marketing sessions or by
flyers sent to other real estate offices. Provided this information
has been made generally available to Realtors, your agent should
know when a seller is truly motivated and when it is just "puff"
designed to elicit interest in a property.
The exception is
when an agent is selling a home they have listed themselves or
selling a home that was listed by another agent from their own
company. In such a situation, the agent may be acting as an agent
for the seller, or as a "dual agent," representing both you and the
seller. In such a situation, they cannot legally provide you with
information that would give you an advantage over the seller.
Comparable sales
information helps you to determine a base price range for a
particular home. Adding in the various factors like property
condition, improvements, market conditions, and seller motivation
help determine whether a "fair" price would be at the upper limit of
that range or the lower limit. Perhaps you will feel a fair price is
outside of that price range.
The "fair" price
should be approximately what you are willing to agree on at the
end of negotiations with the seller.
The price you put in your offer to begin
negotiations is totally up to you and depends on your negotiating
style. Most buyers start off somewhat lower than the price they
eventually want to pay.
Although your
agent may provide advice and guidance, you are the one who makes the
decision. The price you put in the offer is totally up to you.
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